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Homework answers / question archive / 1) You bought $150 000 in 364-day T-bills

1) You bought $150 000 in 364-day T-bills

Finance

1) You bought $150 000 in 364-day T-bills. The T-bills was available at a rate of 4.432% simple discount. If you paid $148 811.24 for the T-bills, how many days before maturity did you buy it?

2) Alphabet Inc. is planning to pay a quarterly dividend of $0.80 on its perpetual preferred share. The market requires a dividend yield of 4.909% compounded annually on preferred shares of similar risks. What is the fair market value of its perpetual preferred share just after payment of a dividend at the end of the quarter (ordinary)? 

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1) Computation of the number of days:-

Discount = $150,000 - $148,811.24

= $1,188.76

Discount = Amount of T-bill * Rate * Time / 364

$1,188.76 = $150,000 * 4.432% * Time / 364

Time = $1,188.76 * 364 / ($150,000 * 4.432%)

= $432,708.64 / $6,648

= 65.09 days Or 65 days

 

2) Computation of the fair market value:-

Fair market value = Preferred dividend / Dividend yield

= $0.80 * 4 / 4.909%

= $3.20 / 4.909%

= $65.19

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